Analyzing Microsoft’s Cash Flow Position in Fiscal 1Q18

Analyzing Microsoft’s Cash Flow Position in Fiscal 1Q18


Nov. 7 2017, Updated 10:30 a.m. ET

Cash, debt, dividends, and cash flow

In fiscal 1Q18, Microsoft’s (MSFT) cash, cash equivalents, and short-term investments stood at $138.5 billion. Microsoft’s total debt stood at $85.5 billion, down from $86.2 billion in 1Q17. Microsoft’s rising debt, which the company incurred to fund dividends and share buybacks, was a source of concern. It generated operating cash flow worth $12.4 billion, compared with $11.5 billion in 1Q18. Its free cash flow grew 10% to $10.3 billion.

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Dividend and buyback program

Though Microsoft stock is trading at an all-time high and its market cap has exceeded $600 billion, its dividend yield still stands at 2.0%. Like peers IBM (IBM) and Oracle (ORCL), Microsoft believes in the charm of dividends. Microsoft’s dividend has risen more than 80% in the last five years. Its considerable overseas cash reserves suggest that there is a decent chance of a dividend increase in the future.

In 1Q18, Microsoft announced a cash dividend of $0.42 per share to its shareholders. The company spent $2.6 billion to repurchase shares and approximately $3 billion to pay dividends to its shareholders in 1Q18. In total, Microsoft returned $4.8 billion to shareholders.

To gain exposure to Microsoft, investors could consider the PowerShares QQQ Trust, Series 1 ETF (QQQ) (SPX), which has an 8.4% exposure to Microsoft. Investors seeking application software exposure could also consider this fund, as application software makes up ~28.4% of its portfolio.


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